MITCourse1.270/ESD.273(Fall2002MW4:00-5:30Rm1-246)Logistics&SupplyChainManagementPROFESSORDAVIDSIMCHI-LEVI

UncertaintyinDemandPipelinesIgnitesSupplyNets9thOctober2002byShoumenDatta,ResearchScientistEngineeringSystemsDivision,SchoolofEngineeringExecutiveDirector,ForumforSupplyChainInnovation/innovationDisclaimer:Opinionsexpressedinthispresentationarethatoftheauthor.ItdoesnotrepresenttheconsensusopinionofMITasaninstitutionorotherfacultythatmaybedirectlyorindirectlyassociatedwithMITSchoolofEngineeringorMITSloanSchool.Today’sdiscussion

UNCERTAINTY

URLforpowerpointpresentation/innovationEducationCourse1.270/ESD.273SCMis

managinguncertainty.

NobelPrizeinEconomics2002(announcedtoday,09Oct2002)"forhavingintegratedinsightsfrompsychologicalresearchintoeconomicscience,especiallyconcerninghumanjudgmentanddecision-makingunderuncertainty""forhavingestablishedlaboratoryexperimentsasatoolinempiricaleconomicanalysis,especiallyinthestudyofalternativemarketmechanisms"

DanielKahneman

VernonL.Smith

1/2oftheprize

1/2oftheprizeUSAandIsraelUSAPrincetonUniversity

Princeton,NJ,USAGeorgeMasonUniversity

Fairfax,VA,USAb.1934b.1927BODYSCANNERBYTC2DisruptiveTechnology?InvasionoftheBodyScanners

DigitallyspeakingPartoftheProcessPERSONAL

DIGITAL

PROFILECustomer:HowwillIlookinthisdress?Retailer:WhatshouldweorderforFall?Manufacturer:What’sthenextdemand?DataminingDataMartRetailersAccessoriesJewelry,ShoesShiseido,CoachHarrod's,M&SGucci,Bally'sGuerlain,PoloUSD,DEMEURO,INRYEN,YUANTRAVELHEALTHEDUCATIONARTS&MUSICCelebrityGalleryWorldHistoryofFashionTheWayWeWoreDataWarehouseBODYSCANeFASHIONEBCB2BAnneKleinLevis,BebeTalbots,AXChina,India,SiamFABRICSUPPLIERSDataWarehouseFABRICBROKERINDEPENDENTDESIGNBROKERGlobalDesignWAREHOUSEMEDIA/POPTailors------------------ContractShopsAmateur'sDesignForumManufacturingTailorBrokerOrderIndividualTailorsOn-callPreferenceSurveySHIPPINGMALLamJuliaRobertsFinancialRETURNCRMDONATESalvationArmyCAREGoodwilleBAYBoutiquesJCPenneyOutletStoresAmateurModelsSHIPPINGERPRETAILERSMACYS,NORDSTROM,BLOOMINGDALESPERSONALPROFILESOFTWAREPERSONALPROFILEANALYSISPortalManufacturerCustomerRelationshipManagementEXPECTATIONvsRESULTSource:AMRResearch1999OctoberUNCERTAINTYUncertainty…….

Lackofrule-basedresolution:expectationvsresultFinancialImpactCostofCorrectionSideEffects

Uncertainty………….FinancialImpactOpportunitylost:unabletorampupEconomicloss:unabletorampdownSource:ForresterResearchSource:ForresterUncertainty………….CostofCorrectionResourcesInventoryUncertainty………….SideEffects(undesirable)TackleonlysymptomsNegativefalloutEBMinSCMofferslittleADAPTABILITYtoSENSEandRESPOND(SupplyChainEventmis-Management)InsulationofPlanningfromExecutionIndividualoptimisationnotSCoptimisationSmart-HubandDumb-SpokeConfigurationIsolationofEnvironmentofOperationSource:ForresterTraditionalAdaptiveSource:ForresterWhattodo?UnderstandcustomerneedMonitorsupplyavailabilityManagesupplychainpartnerperformanceDecentralizeproblemsolvingMonitorcorrectiveactionsandfeedbackIncludemacro-economicindicatorsEvolvingAnalyticalToolsandEarlyUsersSource:ForresterPortfolioofRealOptionsSource:HP&ForresterUncertainty…….FinancialImpactOpportunitylost:unabletorampupEconomicloss:unabletorampdownUncertainty…….Push-PullCaseStudybyDSLHowtoreaddiagramsUncertainty……..LeadTimePerformance………….Performance………….Forsameleadtime,optimizedsupplychainofferslowercostSafetyStockCostvsLeadTimeManagingFinancialCostofUncertaintyUncertainty……..ProcurementPush-PullSupplyChainsTheSupplyChainTimeLineLowUncertainty

HighUncertaintyCustomersSuppliersPUSHSTRATEGYPULLSTRATEGYPush-PullBoundaryFromMake-to-StockModel…….ConfigurationAssemblySupplierstoAssemble-to-OrderModelConfigurationAssemblySuppliersPLMacauseofUNCERTAINTYinSCMSource:ForresterCPLM....CPFRSource:ForresterPLMSource:ForresterWhat’swrongwiththisillustration?Imaginationisoutoffocus!!Source:ForresterInventoryManagementOrderProcessingE-BusinessVendorManagementTaxElectronicCommerceFinancialsMarketingExecutiveInformationInventoryProgramsAccountsPayableStockTransfersWarehouseInboundQA1ReceivingRepairOrdersPurchasingAccountsReceivableOutboundQAShippingOrderServicesQuotingCreditCustomerManagementDistributedDatainConnectedEnvironmentsEvolution?Canthisevolutionary““vision”succeed?Source:ForresterReal-timeDataLayerD2B802.11UWBdERPInternet0Internet1Internet2A

GEN

TSSECURITYRealTimeDistributedDataInfra-de-structurewithEmbeddedAgentsTheSemanticWebBus(WebVan!!)TimBerners-Lee:SemanticWebObservation199883millionaccesstheInternetinlanguagesotherthanEnglishProjection200570%of1billionusersmaynotspeakEnglishFACT46%USbusinessrefuseint’lorderbecausetheylackmeanstoprocessthem.JapaneseSpanishGermanFrenchChineseDutchKoreanSwedishItalian177118251886193919771997IndustrialRevolution1800InformationEvolution18531913196920052025RapidAdoptionIntroductionofTechnology185319131969202520612081ConceptualadvancesoccurabouttwiceacenturyandleadtowealthofnationsTextileRailwayAutoComputerDistributedIntelligenceNanotechSource:NormanPoire,EconomistAGENTSLocatingthePush-PullBoundaryPLANEXECUTESENSERESPONDDEMANDEXCEPTIONSupplyChainEvolvesto...CustomerCustomer’sDCMANUFACTURERRawmaterialSUPPLIERSStoreStoreStoreStoreStoreStoreStoreStoreDCDCDCPaperMedicalCottonStorePlantDCPlantDCREALTIMEePCePCdatafromRFIDTagReplenishmentneedsConfirmationLoadsStoreOrdersStatusImmediateReplenishmentneedsFutureshippingneedsReplenishmentneedsdeterminedfromRFIDTaginfo“IntelligentSignal”P(pán)ORTALS/ExchangeTransportCustomerInfoCenterManufacturerHQrealtimeRFIDdataPersonalCareConsumerTissueHealthCareInformationAgentInventoryEarlyWarningAgentTLBAgentCross-DockingAgentAgentsbasedAdaptiveNetworkConsumptionInventoryDataDCtoMfrSupplyChainsReal-timeAdaptableDemandNetworksDCDCDCPaperMedicalCottonPlantDCPlantDCCustomerStoreStoreStoreStoreStoreStoreStoreStoreStoreIndustrybestnowversuswhatcanbeachieved:NeedtoevolveDay1Day3Day4Day5Day6Day7Day8Day2Day0=Product=InfoDay7Received,unloaded&stockedonstoreshelvesSCOTTDay1Day3Day4Day5Day6Day7Day8Day2Day0=Non-value-addedtime=Product=InfoReplenishedin7daysPortalTransportCustomerCenterManufacturerReplenishedin13hoursroomforimprovementtounder10hrsDCDCDCPaperMedicalCottonPlantDCPlantDCDay1Day3Day4Day5Day6Day7Day8Day2Day0PortalTransportCustomerCenterManufacturerCustomerStoreStoreStoreStoreStoreStoreStoreStoreStoreConsumerBuysSCOTT2pmDay0=Product=InfoFutureSC:ConsumerPurchaseDCDCDCPaperMedicalCottonPlantDCPlantDCPortalTransportCustomerCenterManufacturerCustomerStoreStoreStoreStoreStoreStoreStoreStoreStore=Product=InfoRFIDSmartTagatPOSread2pmDay0SCOTTDay1Day3Day4Day5Day6Day7Day8Day2Day0FutureSC:RFID““Smart”TagReadDCDCDCPaperMedicalCottonPlantDCPlantDCDay1Day3Day4Day5Day6Day7Day8Day2Day0PortalTransportCustomerCenterManufacturerCustomerStoreStoreStoreStoreStoreStoreStoreStoreStore=Product=Info0101100110111010001112pmDay0RFIDSmarttagdatatransmittedinstantly010110011011101000111FutureSC:RFID““Smart”TagDataTransmittedinRealTimeDCDCDCPaperMedicalCottonPlantDCPlantDCDay1Day3Day4Day5Day6Day7Day8Day2Day0PortalTransportCustomerCenterManufacturerCustomerStoreStoreStoreStoreStoreStoreStoreStoreStore=Product=Info0101100110111010001110101100110111010001112:10pmDay0Replenishmentneedsreceivedbyscheduling(TLB)systemsFutureSC:RFID““Smart”TagDataReceivedinRealTimeDCDCDCPaperMedicalCottonPlantDCPlantDCDay1Day3Day4Day5Day6Day7Day8Day2Day0PortalTransportCustomerCenterManufacturerCustomerStoreStoreStoreStoreStoreStoreStoreStoreStore=Product=Info0101100110111010001112:35pm,Day0SystemdetectsOOSdangeratcustomer&co-ordinatesrapid-responseshipment(reallocationofenrouteloadevaluated)010110011011101000111010110011011101000111010110011011101000111FutureSC:RFID““Smart”TagDatahelpsDetectOOSDangerDCDCDCPaperMedicalCottonPlantDCPlantDCDay1Day3Day4Day5Day6Day7Day8Day2Day0PortalTransportCustomerCenterManufacturerCustomerStoreStoreStoreStoreStoreStoreStoreStoreStore=Product=InfoSmartPlannerinterrogatesdemandfilterFutureSC:RFID““Smart”TagDatacoupledwithSmartPlannerDCDCDCPaperMedicalCottonPlantDCPlantDCDay1Day3Day4Day5Day6Day7Day8Day2Day0PortalTransportCustomerCenterManufacturerCustomerStoreStoreStoreStoreStoreStoreStoreStoreStore=Product=InfoSmartPlannerintegratesinfo:currentinventory,shipment,planning

FutureSC:RFID““Smart”TagDatacoupledwithSmartPlannerDCDCDCPaperMedicalCottonPlantDCPlantDCDay1Day3Day4Day5Day6Day7Day8Day2Day0PortalTransportCustomerCenterManufacturerCustomerStoreStoreStoreStoreStoreStoreStoreStoreStore=Product=InfoSmartPlannerexecuteschanges,broadcastsplan,exceptions,optionsFutureSC:RFID““Smart”TagDatacoupledwithSmartPlannerDCDCDCPaperMedicalCottonPlantDCPlantDCDay1Day3Day4Day5Day6Day7Day8Day2Day0PortalTransportCustomerCenterManufacturerCustomerStoreStoreStoreStoreStoreStoreStoreStoreStore=Product=Info4pmDay0TrailerloadedFutureSC:SmartPlanningseguestoTLBDCDCDCPaperMedicalCottonPlantDCPlantDCDay1Day3Day4Day5Day6Day7Day8Day2Day0PortalTransportCustomerCenterManufacturerCustomerStoreStoreStoreStoreStoreStoreStoreStoreStore=Product=Info10pmDay0CustomerDCreceivesSCOTTSCOTTFutureSC:SCOTTPaperTissuereceivedatCDCDCDCDCPaperMedicalCottonPlantDCPlantDCDay1Day3Day4Day5Day6Day7Day8Day2Day0PortalTransportCustomerCenterManufacturerCustomerStoreStoreStoreStoreStoreStoreStoreStoreStore=Product=Info11pmDay0CustomerDCshipsSCOTTSCOTTFutureSC:CDCShipstoStoreDCDCDCPaperMedicalCottonPlantDCPlantDCDay1Day3Day4Day5Day6Day7Day8Day2Day0PortalTransportCustomerCenterManufacturerCustomerStoreStoreStoreStoreStoreStoreStoreStoreStore=Product=InfoReplenishedin13hoursroomforimprovementtounder10hrs3amDay1Received,unloaded&stockedonstoreshelvesSCOTTFutureSC:RFID““Smart”tagdataaidsReplenishmentin13hrsDCDCDCPaperMedicalCottonPlantDCPlantDCCustomerStoreStoreStoreStoreStoreStoreStoreStoreStoreDay1Day3Day4Day5Day6Day7Day8Day2Day0=Product=Info3amDay1Received,unloaded&stockedonstoreshelvesSCOTTDay1Day3Day4Day5Day6Day7Day8Day2Day0=Non-value-addedtime=Product=InfoReplenishedin7daysPortalTransportCustomerCenterManufacturerReplenishedin13hoursroomforimprovementtounder10hrsFutureSC:CanyouaffordtoexcludeRFID““Smart”tagdata?2008:P&Gshortensreplenishmentcyclefrom120daysto1day[1]Source:P&G,Forrester2008:P&Gshortensreplenishmentcyclefrom120daysto1day[2]Source:P&G,Forrester2008:P&Gshortensreplenishmentcyclefrom120daysto1day[3]Source:P&G,Forrester2008:P&Gshortensreplenishmentcyclefrom120daysto1day[4]Source:P&G,Forrester2008:P&Gshortensreplenishmen